Greece must be looking at Iceland with considerable envy

The weekend just passed has seen more signs of what you might call big trouble in little Greece. This is symbolised this morning by the fact that the Athens Stock Exchange remains closed. After all Greece has passed two rounds of legislation at the behest and request of its creditor overlords and in return received just over 7 billion Euros from the European Union emergency fund and seen its banks bolstered by 1.8 billion Euros of ELA (Emergency Liquidity Assistance) from the European Central Bank (ECB). So it would not be unreasonable to expect service as normal and for the stock market to re-open. We are told it might be tomorrow according to Reuters.

“It’s certain that it will not open on Monday, maybe on Tuesday,” a spokesperson for the Athens Stock Exchange told Reuters on condition of anonymity.

So that is definitely maybe with apologies to Oasis.

The scale of the Greek depression

This subject has been documented by me many times but I think that it is getting a wider airing around the mainstream media. I note that Project Syndicate were beating the drum on Friday.

By March 2012, however, reality had set in. With GDP headed to 12% below 2010 levels, a second program was put in place. By the end of the year, GDP had fallen to 17% below 2010 levels. Greece’s GDP is now 25% below its 2009 level. And while some predict a recovery in 2016, I fail to see how any analysis of demand flows can justify that forecast.

So there you have it a contraction of 25% caused by a group of people who claimed that the alternative would collapse the economy! They should be in court, but in an era of rewards for failure one of them now heads the IMF (International Monetary Fund). For newer readers 2012 has been picked out because that was the year according to what was called the troika and is now called the institutions that things could only get better.

If we look for comparisons then Greece is now in a worse situation than the United States was in at a comparable time in the Great Depression which began in 1929. Will there be an equivalent of The Grapes Of Wrath? The reason for the difference is that the United States saw a steep fall followed by a recovery. Where Greece is still falling. From Macropolis.

IOBE think-tank sees recession of up to 2.5 pct this year, milder in 2016

This is a version of the never-ending story as in April they were hopeful of some growth of up to 1%. So we have an estimate of the price of the current crisis. But returning to the central theme we see that the contraction and the depression goes on with the apparent improvement in 2014 now sadly a distant dream. Those who pushed the Grecovery theme must be embarrassed and ashamed.

Interestingly Project Syndicate gave an estimate of what the opportunity cost not defaulting and devaluing has been.

Using Iceland as our measuring stick, the cost to Greece of not exiting the eurozone is equivalent to 75% of a year’s GDP – and counting.

The current situation

You might think that such a disastrous situation would put pressure on both sides to proceed rapidly on Greek bailout take three or 3.0. However according to the Financial Times the institutions are already accusing Greece of back-sliding.

“This, at present, is the big, fat, issue,” said one official involved in the talks. “They do not want to understand that there will be yet another significant package of ‘prior actions’ before any disbursement. They already have implementation fatigue after two mini-bills.”

Thus it would appear that the involvement of the nine members of the European Union who are not Euro members has “only just begun” as the Carpenters put it.

But officials said the differences remained so significant that they could require the EU to agree another €5bn bridging loan so that talks could continue into the autumn.

We are back to a situation where the EFSM is required because we have an “emergency” to be replaced by the Euro ESM which can only distribute funds if there is not an emergency. On what a tangled web and all that.

There are so many contradictions here and let me present another from a regular contributor on such matters which is Benoit Coeure of the ECB.

“the question is not whether to restructure Greek debt but what so do it for it to be truly useful to the economy “

Yes a representative of the same ECB which has insisted on full repayment on all of the Greek bonds it holds and is the major reason (3.7 billion Euros on August 20th) why more bridge financing seems now likely. Lord make me virtuous but not yet seems to be the theme for this!

What about the banks?

As ever they are at the heart of the matter. This morning has seen the official confirmation of the 8.1 billion Euro fall in Greek bank deposits that Mario Draghi told us about at the last ECB Press Conference albeit that it was rounded up to 8.2 billion. In response the ECB seems to have settled on throwing another 900 million Euros of ELA into the mix every now and then.

This of course is no way to run a banking system as we wonder how the credit supply from the Greek banks has been affected or not to put too fine a point on it, if there is one. My late father regularly used to complain that in UK recessions his business not only found it difficult to get new credit but saw existing lines reduced or withdrawn. Imaging the effect of such moves should Greek bankers prove to be like British ones! How much will they be lending in the environment described below by Kathimerini?

Greek banks are set to keep broad cash controls in place for months, until fresh money arrives from Europe and with it a sweeping restructuring, officials believe.

“The banks are in deep freeze but the economy is getting weaker,” said one official, pointing to a steady rise in loans that are not being repaid.

Sadly it remains a downwards spiral as weaker banks create a weaker economy which creates weaker banks and repeat.


There has been much press attention about the Plan B that was being at least considered by the recently deposed Finance Minister Yanis Varoufakis. Well I suppose that puts him ahead of England’s rugby team! But more seriously it would have been remiss of him not to have had a plan B and in many respects his apparent rejection of Grexit means that it did not go far enough in my opinion. Also some aspects seem to have come out of a James Bond movie plot. From Kathimerini.

Is it true they had planned to raid the National Mint and that they prepared for a parallel currency by hacking the tax registration numbers of the taxpayers?

Also this bit seems rather contradictory from someone who claims not to be considering Grexit.

but at the drop of a hat it could be converted to a new drachma

At the drop of who’s hat Yanis?

This is now like an anti-morality play where both parties desperately cling to something they know will fail as they wait for an opportunity to blame the other side for the failure. Meanwhile the economy heads south with only the occasional glimmer like some hopes for tourism income.


As the UK’s contribution to the EFSM rises you might like to know how we record the liability. Below is the reply I received when I asked.

EFSM only affect borrowing (EU conts) if Greece default.


21 thoughts on “Greece must be looking at Iceland with considerable envy

  1. Hi Shaun,

    Be careful who you vote for, I think is the mantra here. The bunch of marxist loonies currently in charge of the Greek asylum, were never going to be able to deliver on the false promises they made to the Greek electorate, but they are doing very nicely on their ministerial salaries and perks, thank you very much, while at the same time completely screwing the Greek economy and the electorate who voted for them. The estimated damage these idiots have imposed on the Greek economy is currently at least €60bn and still growing. With politicians like these who do the electorate need as further enemies?

    IMO the current Greek government have only agreed to the new round of reforms as the alternative were even worse and like previous Greek governments, they are unlikely to deliver on them unless beaten with a financial big stick. Even in 2010 this never looked like ending well and the outlook has got progressively worse.

    At what point are the eurozone taxpayers going to say enough is enough, where every man, woman and child has already donated over €1000 each into the Greek black hole with no end in sight? Don’t forget that some of the eurozone countries are desperately poor themselves, compared to the Greeks and the money would have been much better spent on their own populations.

    I think my attitude, along with many other people has hardened, where the Greek people and certainly their politicians are not helping the cause and economic recovery in anyway, but looking for easy ways out at everybody else’s expense.

    How much worse is it going to get? Well would you trust the Troka or the Greek government to look after your own personal finances?

    • The “Marxist loonies”, as you call them, didn’t destroy the Greek economy, didn’t borrow and misuse the loans for party advantage, and the lunacy lies in the scorched-earth austerity policy which is still being pursued by the neo-liberal troika.
      Further, that €1k has not been donated to Greece, but (in many cases not so) indirectly to private financial institutions.
      I only hope that those subhumans, wilfully inflicting such misery on the Greeks, and those who wish it upon them, see the chance to suffer as they do.

      This is a disaster, a totally avoidable disaster, and I feel thoroughly ashamed that my country, through the EFSF, is playing a part in it.

      • Hi rods2,
        In the same way as it was not appropriate for Iceland to join the club of massive global financial centres it was not appropriate for Greece to join the euro club. In both cases they over-extended themselves, and their respective populations have paid a heavy price.
        The unwinding of these past decisions was always going to extremely difficult but in Greece’s case it has also served to highlight the disunity of the Eurozone, which of course is the opposite of what was intended on it’s inception. I find it hard to blame the Greek electorate for voting in the way they did when they are desperate for a way out. Yes, big mistakes have been made but it’s the lowest common denominator to play the blame game instead of dealing effectively with what’s in front of you, and now they must realise they have become pawns in a much bigger game.

      • They got themselves elected on the promise of lifting austerity and not paying back their creditors on the basis of getting a write down and better terms for the remainder, saying the money was the creditor’s problem not the Greeks. Both of these were lies.

        Over many years, I’ve known very smart people in business and some that I will say generously were not so smart, but none of them have been so stupid when they owe the banks money as to be very rude to them and tell them it’s their problem and that they have not got the money to pay them back, as they instinctively know what the creditor knows that they always have the upper hand and can always foreclose! Now if somebody was so stupid to do this, they can’t expect to get much sympathy, when they complain it is all the banks fault, they have lost their business, sources of income and are much worse off.

        The mess with the banks, stock exchange closed and capital controls is the creditors giving a foretaste of what foreclosing would mean in reality to the Greek population, this is why the fools in Government have had to go back, cap in hand and accept their punishment for being so stupid and accept worse terms! It has not been pretty, but sadly very predictable. The Greek economy has also gone from looking like it was beginning to turn the corner to being a disaster area again with an estimated €60bn loss to the economy so far. Sorry, but I do blame those that voting for the fools as what they were offering was too good to be true! The people I do have some sympathy for, are those that voted more responsibly and are also suffering.

        A loan is only a loan if there is a realistic prospect of it being paid back and if it is taxpayers money that has been lent on their behalf, that it is also paid back and used to benefit those taxpayers before they die, otherwise in both cases it is a gift, as they never see the benefit of their hard earned and paid taxes..

        The Baltic countries have been through their dose of medicine every bit as bad as the Greeks, but carried out their reforms and are now growing. These countries and their citizens are much poorer than the Greeks, so why should they have to keep gifting money to them?

      • Syriza lied that it was possible to remain in the euro without austerity. When they had a referendum result saying the public wanted the banks to go to hell Iceland style, they betrayed the people. I’d call them charlatans.

        • I’d call them cowards.
          They turned up at a gunfight with nuclear weapons, but wouldn’t push the button.

    • Hi Forbin

      The best times came and went (2010/11) but it is my opinion that there are still gains from it especially as we see that the current mess is still dragging the Greek economy downwards.

      Meanwhile elsewhere China has returned to the news with this morning’s equity market drop which is hitting the commodity complex again with Dr. Copper and Oil (Brent Crude falling below US $53) being hit. You may be more pleased however to see the 5% drop in corn futures today.

  2. Shaun,
    Bill Mitchell’s MMT blog had an interesting idea whereby Greece switches to an electronic Drachma ie No notes issued but the population issued with debit cards so all new currency payments tracked in an attempt to ensure taxes paid etc!

    • ooooooohhh

      if that happens , all the governments around the world will do the same….

      and the Banks win another round


    • Hi ChrisL

      It is an interesting idea and it should definitely help with the tax issue. I was looking at the household disposable income numbers for Q1 earlier which in net terms had risen 2.6% which seemed hopeful. However it wasn’t that income was higher it was that less income tax and social security contributions were being paid. The institutions keep insisting on more of those not less!

      The catch is that the ordinary citizen is tied to a system where where Big Brother/Sister is in complete control. So technology maybe helpful but also runs the risk of enslaving us. JW made this point a couple of weeks or so ago I think.

    • LOL. Auditting software for accuracy and lack of bugs is very difficult. What a perfect scam to have a backdoor into the electronic currency system …..

      Nor does it eliminate cash transactions – ordinary Greeks can use foreign hard currency to avoid the taxes

  3. Hi Shaun and thanks for this very informative blog.
    These figures are truly disastrous and it is difficult to see how Greece as a mainly service economy can change this around. I wonder what any Finns amongst others reading this are thinking. This has come about by ambitious and deceitful leaders aided by Goldman Sachs hiding the country’s true debts. Caring nothing for the people and only for the benefits and remuneration they would receive
    But these are not only figures but they are people’s employment,pensions and aspirations. People who have been told again and again just wait a little longer as improvement is just around the corner. Like a lot of others I am amazed with such high youth unemployment there hasn’t been more protests on the streets than there has been.
    After your mention recently I walked around Battersea park and agree it is a gem.
    And well done Chris Froome.

    • and well done Lord Sewel !

      single handley showing how to pull the UK out of recession as he contributed to the new method of calculating GDP …………….

      and he’s being procecuted ?

      oh I see , he forgot to fill in hos tax returns on that stuff (!!)


    • Hi Midge

      Yes congratulations to Chris Froome. As to parks I have been going to Battersea Park since I was a small boy. Back then I was taken by my parents to the funfair which of course met a sad end. These days I consider myself lucky to live nearby.

      London’s parks are under threat as another one not far away (Falcon Park on a cut through to Clapham Junction) is in danger of being sold and becoming a 5 a side football complex. It is not far off a national scandal as they are not only the lungs of London they are for everyone and make the place more civilised.

  4. Iceland’s credit rating is higher than Greece’s despite Iceland having a default officially recorded.

    Default and devalue, the sooner the better.

  5. Shaun,

    If Greece were an individual instead of a state then Amnesty would be citing “the institutions” for torture. Of course Greece is just a human sacrifice to preserve the rest of us living in our unsustainable debt bubble (along with out lurverly bankers).

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.